Tobin taxes on financial markets, such as the EU Financial Transactions Tax, are regularly under consideration. This column argues that a rationale for a Tobin tax exists even in competitive and informationally efficient markets when traders have private information and they condition on prices. In this situation traders overreact to private information, and a transactions tax may offset this externality.
Xavier Vives, 14 February 2017
Semyon Malamud, 11 May 2016
Exchange-traded funds (ETFs) are an efficient way for small investors to invest in a specific index. In this Vox Views video, Semyon Malamud discusses the implications of the growing number of ETFs. In a perfectly efficient market, the price of the ETF should be equal to the net asset value, but deviations create arbitrage activities and lead to market inefficiencies. The video was recorded in April 2016 at the First Annual Spring Symposium on Financial Economics organised by CEPR and the Brevan Howard Centre at Imperial College.
Roger Farmer, Carine Nourry, Alain Venditti, 13 January 2013
Existing literature continues to be unable to offer a convincing explanation for the volatility of the stochastic discount factor in real world data. This paper provides such an explanation, demonstrating that financial markets, by their very nature, cannot be Pareto efficient except by chance. Although individuals in our model are rational; markets are not.